USD/CHF languishes around 0.7960 with US Consumer Sentiment on focus
- The US Dollar wavers around 0.7960 after rejection from 0.8000 on Thursday.
- A large increase in US Jobless Claims cemented hopes of Fed easing and capped USD's upside attempts.
- Dovish comments by SNB P Schlegel have increased bearish pressure on the CHF..
The US Dollar remains trading within a tight range, with upside attempts limited at 0.7980, following a rejection from the 0.8000 psychological area on Thursday. Higher Jobless Claims and moderate consumer inflation figures cemented hopes of Fed cuts and undermined speculative demand for the USD.
Weekly claims for unemployment benefits rose to a four-year high of 263K last week, well beyond the 235K expected and above the previous week’s 236K.
At the same time, August Consumer Prices Index met market expectations, with the yearly inflation accelerating to 2.9% from 2.7% and the core CPI steady, at 3.1%, confirming that the conditions are set for a rate cut in September, and one or two more before the end of the year.
Later today, the US Michigan Consumer Sentiment Index is expected to show a further deterioration in September. The Index is seen falling to 58.0 from 58.2 in August, levels about 15% below the ones seen last year at these times, and adding pressure on the Fed to ease borrowing costs.
The Swiss Franc, however, is failing to capitalise on US Dollar weakness, as dovish comments by the Swiss National Bank (SNB) Chairman Martin Schlegel, stating that the bank will “not hesitate” to ease monetary policy further, keep weighing on demand for the Swiss Franc.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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